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Representation and Warranty Framework

Representations and Warranties are a lender’s assurance that a mortgage loan sold to Fannie Mae or Freddie Mac (the Enterprises) complies with the standards outlined in the Enterprise’s selling and servicing guides, including underwriting and documentation.  When mortgages don’t comply, the Enterprises may require remedies, including issuing a repurchase request.

FHFA and the Enterprises have engaged in a multi-year effort since 2012, to improve the Representation and Warranty Framework (Framework).  Prior to this effort, the Enterprises had significant discretion to determine whether or not a loan had underwriting defects and what constituted an appropriate remedy for a defective loan.  This generated uncertainty for lenders and can contribute to increased credit overlays that affect lending costs and may reduce access to credit.  The objective of the Framework has been to enhance transparency and certainty for lenders by clarifying when a mortgage loan may be subject to repurchase.  

The first improvements to the Framework took effect in January 1, 2013 with the introduction of representation and warranty relief for underwriting the borrower and property when a loan meets certain payment history requirements, such as 36 consecutive on-time monthly payments made by the borrower.  

Additional enhancements to the Framework were announced in 2014, such as adjusting the payment history requirement to allow up to two delinquencies of 30 days or less within the first 36 months after loan purchase and allowing lenders to stand in for an insurer when mortgage insurance is rescinded after delivery. 

The Enterprises took additional steps in 2015 to finalize improvements to the Framework, categorizing loan origination and servicing defects and the appropriate remedies available to address them.  

In February 2016, the final piece of the Framework was completed – the independent dispute resolution (IDR) program.  Developed cooperatively by Fannie Mae, Freddie Mac, FHFA and the lending community, IDR is designed as a way to resolve contested loan-level disputes about repurchase requests.  Under this program, a neutral third party will determine whether a breach of representations and warranties exists to support a repurchase request.  

All together, these improvements are intended to provide more certainty for lenders, facilitate greater liquidity to the primary market, and help increase access to credit without compromising safety and soundness.

Links to Representation and Warranty Documents:​